Question

homework Saved Help Save & Exit Submit Check my work Required information Business Sim Corp. (BSC) issued 1,000 common shares to Kelly in exchange for $12,000. BSC borrowed $30,000 from the bank, promising to repay it in two years. BSC purchased computer equipment for $40,000, signing a six-month note for $5,000, and paying the balance with check number 101. BSC received $900 of supplies purchased on account. BSC's loan contains a clause (covenant) that requires BSC to maintain a ratio of current assets to current liabilities of at least 1.3. Required: 1. Identify the transactions and analyze their accounting equation effects. (Enter any decreases to account balances with a minus sign.) Assets Liabilities Stockholders' Equity 1. 2 3. 4. Totals 0 0 < Prev 11 12 13 14 of 23 Next >

Answer 1

No	ASSETS		=	LIABILITIES		+		STOCKHOLDERS EQUITY
1	Cash	$ 12,000	=				Common stock	$ 12,000
2	Cash	$ 30,000	=	Long term loan	$ 30,000
3	Equipment - Paying through cheque	40,000-35,000= $ 5,000	=	Note payable	$ 5,000
4	Supplies	$ 900	=	Accounts payable	$ 900
TOTALS		$ 47,900	=		$ 35,900	+		$ 12,000

SUMMARY:

The first transaction is issuing shares for cash which increase cash and increase equity.

Second one is borrowing money from bank which increase cash as assets and increase long term liability of bank loan.

Third transaction is purchasing equipment by paying $ 35,000 through cheque and $ 5,000 as note payable which increase equipment by $ 40,000 and decrease money $ 35,000. So net change in asset is $ 5,000 and the same amount is increased as note payable liability.

The fourth transaction is purchasing supplies on account which means that supplies is an asset and is increased and accounts payable also increased.

Maintaining current assets to current liabilities doesnt need a entry.

Total assets = liabilities + equity.

47,900 = 35,900 + 12,000